Lesson of $700B rescue plan is Congress needs to take its time

Friday

Nov 14, 2008 at 12:01 AMNov 14, 2008 at 5:00 PM

Washington lawmakers must be deliberative and cautious about another bailout, unlike they were when they rushed last month to pass a massive $700 billion plan to rescue financial institutions from bad debt.

Before, it was the financial institutions, and now, it is the nation's auto manufacturers that are in peril. Which industry will be next?

The argument for doing something is the same: No one likes the idea of the federal government pumping money into private companies, but the alternative (collapse of one or more automakers) is worse and would have widespread implications for the economy.

At some point, we need to accept that the recession is upon us and we have to stop reacting as if every troubled company is a national crisis situation. We may have to accept some fallout and know that a recession will have to play itself out.

Congress returns to Washington next week, and a $25 billion rescue bill for the automakers is on the agenda. The concept is to carve the aid out of the $700 billion economic rescue plan passed last month. The money would be for loans to the three main U.S. auto companies, providing for the government to hold some ownership stake in them during the term of the loan.

Such an approach has more appeal than more outright aid. It is the same direction the Treasury Department has turned with the bailout of the financial institutions.

Treasury Secretary Henry Paulson said Wednesday that the administration had shifted from the original centerpiece of the $700 billion package - buying troubled assets - and instead was spending $250 billion to buy bank stock. Maybe that is the way to bolster the automakers, too. But in any event, Congress should be involved and should take time to evaluate the situation.

Apparently, the danger level for the banks has been downgraded. That suggests that Congress rushed with its original plan and that it should take more time with the automakers' situation now.

The failure of even one of the Big Three would be a huge economic event, to be sure. But some lawmakers convincingly argue that bankruptcy would not be a bad outcome, allowing an auto company to reorganize much as airlines have done over the years.

And Congress has other strategies to consider for stimulating the economy.

One that should be discarded is another tax rebate. These obviously do little, if anything, to inject money into the economy.

A tax cut, if targeted to the low-income and middle class, has some appeal. But its ability to re-energize the economy is questionable.

An Associated Press poll this week suggested that working Americans are skeptical, with only 36 percent saying an income tax cut should be a top priority. Instead, 80 percent said, creating jobs should be the No. 1 goal.

President-elect Barack Obama has bandied a $175 billion stimulus, which would include spending on public works projects, once he is in office in January.

Public works has some appeal. It would create jobs and build lasting infrastructure. It also is an approach that helped the U.S. emerge from the Great Depression.

If Congress is unable to make such decisions in a lame-duck session, it would not hurt to wait until it convenes in January to decide on more economic stimulus. Anything done more urgently should be done only within the limit of the $700 billion already allocated.

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